Financial Risk Manager Part 2
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An operational risk manager is presenting to a group of representatives from financial institutions on the advantages and disadvantages of different approaches firms use to manage operational risk. The manager provides an example of a financial institution that uses the Swiss cheese model as a control structure to manage the risk of operational losses due to incorrect transaction processing. Which of the following correctly describes an expected impact of the firm's use of the Swiss cheese model?
A
Controls are structured in a way that a failure of a single key control would directly result in an operational loss.
B
Controls are structured in a way that every layer of controls would have to fail in order for an operational loss to occur.
C
When using this model, the probability of each subsequent control failure is dependent on whether a previous control for the same process failed.
D
By using this model, the probability of an extreme operational loss decreases significantly but the probability of small operational losses increases.